• $30m preference refinance key bottom line boost
• BISX-listed APD exceeds initial targets by $1.2m
• Close to pre-COVID TEU volumes in ‘22 full year
By NEIL HARTNELL
Tribune Business Editor
The operator of Nassau’s main commercial shipping port beat its original full-year profit target by 19 percent aided by a $30m preference share refinancing that slashed 2022’s debt servicing costs by $677,000.
Dion Bethell, Arawak Port Development Company’s (APD) president and chief financial officer, in written replies to Tribune Business questions confirmed that taking out, and replacing, the preference shares with cheaper bank debt had played a major role in exceeding the prior year’s bottom line as well as performance targets set a year earlier.
The BISX-listed port operator and owner’s unaudited financial statements for the year to end-June 2022 reveal that its $7.407m total comprehensive income beat the original profit forecast of $6.208m, as set out in its 2021 annual report, by almost $1.2m or some 19.3 percent. And the bottom line was some 11 percent ahead of 2021’s $6.672m as APD came close to matching pre-COVID-19 financial performance comparatives for the full 12-month period.
Mr Bethell confirmed that “financial year 2022 revenue, net income and cargo volumes are still below pre-pandemic levels”. For the full year to end-June 2022, he said revenues and net income were some 3 percent and 9 percent, respectively, below 2019 levels which was the last full year before the pandemic struck in March 2020.
Twenty-foot equivalent unit (TEU) container throughput volumes closed out the year down just 2 percent compared to 2019, although for the months of January and June they were actually ahead of comparatives from that pre-COVID year. Meanwhile, total vehicle imports for the 12 months to end-June were 29 percent off from 2019 levels while bulk tonnage was some 7 percent ahead due to ongoing resort and investment-related construction.
However, APD’s operating income and earnings before interest provide an insight into how the BISX-listed company and its several thousand shareholders, including the Government with its 40 percent ownership, have already benefited from the 2021 $30.482m preference share refinancing and removal of this debt from the balance sheet.
APD’s earnings before interest, depreciation and amortisation were relatively flat, only increasing by a little over $600,000 or 4.2 percent year-over-year to $15.155m as opposed to $14.54m in 2021. The same was true for earnings before interest, which was less than $50,000 ahead of the prior year at $10.614m.
However, the refinancing - which occurred during the first quarter of APD’s 2022 financial year - slashed its preference share debt servicing costs (dividends) by more than five-fold to $320,563 from $1.768m the year before. And, while its replacement with bank debt saw interest expense associated with the latter jump to $770,295, this was more than offset by the lower interest rate attached.
As a result, APD’s net financing costs fell by 17.7 percent year-over-year or by some $688,000 to $3.207m compared to $3.895m the year before. “We repaid our preference shares and replaced it with a long-term debt at a much lower interest rate in September 2021,” Mr Bethell affirmed to Tribune Business.
“The full year 2022 interest expense related to the bank debt ($770,000) and approximately three months of the preference shares ($321,000), totalling $1.091m versus interest on preference shares totalling ($1.768m) resulted in a net savings of approximately $677,000 in financing costs year-over-year. Moving forward, the savings would be reflected through the interest expense at 3.1 percent versus 5.5 percent on the reducing balance of the principal.”
Elsewhere, APD saw its total revenues rise by nearly $1.2m year-over-year to $29.96m in 2022 as opposed to $28.775m in the prior year, representing an increase of 4.1 percent as the Bahamian economy - and therefore imports and shipping cargo volumes - continued to recover from COVID-19 and associated lockdowns and restrictions.
Mr Bethell said revenues and expenses for the 12 months to end-June 2022 exceeded APD’s internal budget forecasts by 5 percent and 1 percent, respectively. Identifying the main revenue growth generators, he added: “The main drivers for the increase in revenue year-over-year were related to TEU volumes and vehicle volumes, which increased by 8 percent and 16 percent, respectively.
“The volume increases were related to COVID recovery. Hotel occupancy increased along with air and sea arrivals, and project cargo for Gold Wynn, the US Embassy and the Nassau Cruise Port. TEU volumes were 128,994, 8 percent higher than financial year 2021. Vehicle volumes were 10,056, 16 percent higher than 2021, and bulk tons were 304,590 or 10 percent lower than 2021.
“TEU and vehicle volumes are still below pre-pandemic volumes in financial year 2019 but steadily trending upward, and Bulk ton aggregate volumes are slightly over pre-pandemic levels.” On the expenses front, APD’s total operating costs rose slightly year-over-year to $14.805m, a 4 percent growth over the prior year’s $14.235m, and almost matching the rate of revenue growth - again highlighting the refinancing’s importance to the company’s performance.
“We remain very prudent in the management of expenses. The acquisition of the new crane reduced some of our R&M (repair and maintenance) expenses,” said Mr Bethell. “We negotiated more favourable rates and terms for key operational expenses and service contracts. Where possible we did certain work in-house.”
Asked about the outlook for the current financial year, which closes at end-June 2023, he added: “We look forward to returning to our pre-COVID volumes and the economy rebounding, as our tourism numbers return via air and sea arrivals and more Bahamians are re-employed or their week hours increase. Children have returned to in-class learning and the mask mandates have been lifted.”